Investing Indirectly In UK Property & Property Funds
Property – alongside cash, bonds and shares – is one of the four most common types of investments. Property investment takes many forms, from pooled funds to buying a house to live in or let out. This guide covers your potential risks and rewards of indirect property investment. You can invest indirectly in UK property in different ways. Find out more in this guide.
- When might property investments be right for you?
- Indirect property investment options
- Investing in property funds
- Buying shares in listed property companies
- Investing in land banking schemes
When might property investments be right for you?
Indirect property investment may be for you if you:
- want to invest in property markets without having to buy a house or flat yourself
- are ready to commit to a long-term investment
- understand that the property market can fall as well as rise and that the value of your investment can therefore go up or down
Indirect property investment options
There are three main types of indirect property investments:
- property funds
- shares in property companies
- land banking schemes
Investing into UK property funds
Property Funds provide investors with both long-term growth and income. They give you the advantage of investing in property without having to deal with the day-to-day issues of management. The objective of a property fund is to provide investors with an income return from a diversified portfolio of UK properties, while making acquisitions and disposals at the right time in the market cycle to extract maximum capital growth.
- Asset backed investment for security
- Normally a low entry level investment starting from around £10,000
- Sometimes can be short term investments from 1 year!
- Normally easy to release your funds at certain stages
- No direct ownership of property (your name will not be on any deeds)
- Limited control over what properties are purchased through the fund
Buying shares in listed property companies
- Property investment companies listed on a stock exchange are companies that may own, develop and manage property on behalf of shareholders. They are either too small for REIT status or choose not to operate as a REIT.
- You invest by buying shares in the company. See our guide to Investing in shares to find out more.
- If the property company you invest in does well, you’ll earn a dividend – a share of the profits. You can also make money if the share price goes up, letting you sell for a higher price than you originally bought at.
- Some companies invest in specialist property types, giving you access to markets that are normally hard to invest in.
- You can hold shares in a tax-free ISA, up to your annual limit. See our guide to ISAs to find out more.
- The value of your investment can go down as well as up and you may get back less than you invested.
- Listed property companies are not subject to direct supervision by the Financial Conduct Authority (FCA) so you can’t go to the Financial Ombudsman Service to make a complaint or claim compensation from the Financial Services Compensation Scheme (FSCS) if the company goes bust.
Investing in land banking schemes
Most land banking schemes are not authorised by the Financial Conduct Authority. With land banking, you buy a plot of land in an area that has not been given permission for development. The people selling plots often claim that the value of the land will jump once planning permission is granted. However, the land could be protected and may never gain planning permission. Be aware that these schemes are high risk and could be scams. Before buying land, contact the area’s local council to find out if the land is likely to be released for development.
If a land banking investment scheme claims to be structured as a collective or pooled investment, it must be registered with the Financial Conduct Authority (FCA).
- If the scheme is genuine and the land increases in value, you may be able to sell the plot for more than you paid.
- You can hold shares in a tax-free ISA, up to your annual limit.
- High risk of fraud.
- Some companies will tell you that the land can be built upon or has planning permission, but you may be buying land that can’t be developed, either because it’s protected for its beauty or off-limits due to industrial pollution.
- Land banking schemes not authorised by the FCA are not subject to any rules or regulation on the fair treatment of customers or the handling of client’s money.
- If you invest through an unauthorised company and things go wrong you can’t go to the Financial Ombudsman Service to make a complaint or claim compensation from the Financial Services Compensation Scheme (FSCS).